The 80 / 20 Rule
The Pareto principle commonly known as 80/20 rule or 80/20 principle.
The 80-20 rule maintains that 80% of outcomes (outputs) come from 20% of causes (inputs).
The principle is named after Italian economist Vilfredo Pareto, who in 1896 showed that approximately 80% of the land in Italy was owned by 20% of the population.
This “rule” is a precept, not a hard-and-fast mathematical law. mathematically it is roughly viewed as a power law distribution
How does the 80/20 rule work?
Simply put, 80% of the results come from 20% of the causes, and the remaining 20% of the results comes from the rest of the causes.
example in a $100 000 donation:
20% of donors donate 80% of the needed sum or $80 000, while the remaining 80% of the donors only donated $20 000 or 20%.
What is business example of the 80/20 rule?
An adage of business management that “80% of sales come from 20% of clients.
80% of a company’s revenue is generated by 20% of its customers.
Why is the 80/20 rule useful?
- In the 80-20 rule, you should prioritize the 20% of factors that will produce the best results.
- A principle of the 80-20 rule is to identify an entity’s best assets and use them efficiently to create maximum value.